A joint loan is a loan that two or more people take out in their names, and it does not matter whether there is a relationship between borrowers. Joint loans are mainly common among couples, and hence, they are also addressed as loans for couples. Joint loans are applied by people when they have to borrow a large sum of money, for instance, a mortgage and an auto loan.

It is likely that your income is not sufficient to borrow a large amount of money, or your credit rating is poor. In this scenario, you will find it hard to get approval for a loan. However, you can make your credit profile appealing by jointly applying for a loan.

The person with whom you apply for a loan must have a good credit rating. Bear in mind your lender will not trust your repaying capacity if your co-applicant does not have a good credit rating. A joint loan is approved when all parties have a good credit rating and they all have the potential to repay the loan individually.

Joint loans work slightly different

Joint loans work slightly differently from any other standard loans. A lender will carefully examine the credit report and the income sources of you and your partner. Hard checks will be made to see your past payment behaviour. If any of you have a bad credit rating, your lender will call your credibility into question, which means they will either turn your application down or charge very expensive high interest rates.

You and your partner will both be responsible for making each instalment. However, if your lender refuses to repay the debt, you will be obligated to pay off the whole sum of money. Therefore, your lender will examine your potential to repay the whole debt.

There are two types of joint loans

Joint loans are not one-size-fits-all. The size of the loan is determined based on your financial circumstances. A joint loan can be unsecured as well as secured. Most of the borrowers think that they need to apply for a loan jointly only when they have to borrow a larger sum, but the fact is that you may need to apply for personal instalment loans jointly if your lender does not want to offer you as much as you want because of your poor credit score.

Lenders usually prefer a joint application when you take out an unsecured loan because they do not have collateral and a guarantor whom they call in on. If your credit score is bad, they will charge very high interest rates and yet will restrict you from borrowing a larger sum. Therefore, it makes sense to have a co-applicant while looking to apply for an unsecured loan.

If your credit rating is not so good, you will likely end up with very high interest rates. In order to mitigate the risk, it makes sense to apply for these loans with an applicant. However, your co-applicant must have a good credit history.

You will be refused to get money in your name if your credit score is poor or your income is not sufficient. Make sure your co-applicant does not have the same issues.

Lenders expect joint application when your income is not sufficient to pay off the debt you are taking out. However, they are not as expensive as unsecured loans because lenders can get their money back by selling the secured asset. Your house is on the line if you do not make payments on time.

Credit score will be ruined for your partner as well

It is vital to ensure that you can repay the debt on time. One of you is supposed to pay off the whole debt if the other refuses to make payments. Do not live under the impression that you are responsible for paying only half the debt.

If your partner refuses to pay off, you will still have to pay down the full instalment. You cannot assume that you can beat the rap by making half the payment. Because you have taken out a joint loan, you are linked financially to each other. It will also have an impact on your credit rating as well. In case any one of you fails to meet their obligation, the other will also lose their credit points despite settling the full dues.

The impact of a non-payment will be far-reaching. Next time when you apply for a loan, you will be mistrusted. Lenders will assume that you can make a default. As a result, they will hesitate to lend you a larger sum. As far as you are concerned about borrowing a small sum, you will end up with high interest rates. Some lenders might expect you to arrange a guarantor with a good credit history.

It is always recommended that you check your affordability before applying for a joint loan. Get a pre-approved letter from multiple lenders, and make sure you choose the one that offers you better interest rates. Although a lender is supposed to check your affordability, you should always use a joint loan eligibility checker. There are various online loan calculators you can use to check how much it will cost you. Remember that the actual cost will be more than the estimated cost.

Things to consider before applying for a joint loan

Here are the things you should carefully look at before applying for a loan:

• You are at risk of being rejected if you link your account to someone with a poor credit rating.
• If your partner dies, you will still be liable to repay the whole of the debt.
• Be realistic about your circumstances especially if the loan term is long. Events like break-up or divorce, accidents, and loss of work should be taken into account.

The final word

Anybody can get a joint loan. It is not necessary to be a couple to apply for a joint loan. At the time of using these loans, make sure you and your partner are both capable of repaying the debt.